Shares of Amazon (AMZN -2.33%) have more than doubled since the start of 2023. That makes the e-commerce giant one of the best-performing stocks on Wall Street.
Yet, the question investors should be asking now is: What's next for Amazon?
To answer that question, we have to look at Amazon's business by the numbers. So, let's dive in.
Image source: Getty Images.
Amazon Web Services is a massive division within an even larger company
Amazon is a huge company. Over the last 12 months, the company generated $590 billion in revenue across multiple business divisions. Each of these segments benefits the overall company in its own way. However, there's no doubt about it: Amazon Web Services (AWS) is the company's crown jewel.
Launched in 2006, AWS is the world's largest cloud services business. The division now generates over $100 billion in annual revenue. To put this figure in context, AWS' total sales are now higher than those of PepsiCo, Walt Disney, and Nvidia. Furthermore, if AWS were a stand-alone, publicly traded company, it would be the 36th largest company in the S&P 500 by revenue -- with revenue roughly equal to Tesla.
AWS is gigantic, and its importance to Amazon can hardly be understated. This is why Amazon's next big move revolves around AWS.
AWS is due for a makeover
It's true: AWS is the biggest cloud services provider. Indeed, recent estimates place AWS atop the list of global cloud providers, with a 31% market share, followed by Microsoft's Azure (25%) and Alphabet's Google Cloud (11%).
Image source: Statista.
Yet, this snapshot doesn't tell the whole picture. As recently as 2022, AWS held a 33% market share compared to Azure's 22%. In other words, Azure is closing the gap on AWS.
Perhaps in response to this, Amazon Chief Executive Officer Andy Jassy recently announced a shake-up at AWS. Current AWS CEO Adam Selipsky will step down in June. He will be replaced by Matt Garman.
In addition to the leadership change, the company is ramping up spending, as the battle for AI dominance heats up. In last month's earnings call, Amazon Chief Financial Officer Brian Olsavsky said this:
"We will be meaningfully stepping up our CapEx and the majority of that will be...to support AWS infrastructure and specifically generative AI efforts...In Q1, we had $14 billion of CapEx. We expect that to be the [lowest] quarter of the year."
What is Amazon's next big move, and is the stock a buy now?
Amazon's next big move is to ramp up spending on AWS to fight off the challenge from Azure. In the short term, that will reduce the company's free cash flow, as its capex spending rises. It could be a risky move, as it's not a given that the increased spending will boost the company's cloud services market share.
Amazon, however, has executed similar strategies well in the past, most recently during the pandemic, as it invested heavily in its distribution network -- an investment that is now paying off by reducing delivery times thanks to its increased regionalization.
At any rate, it's clear that Amazon management is taking the challenge from Microsoft (and others) seriously. As a shareholder, that's what I want to see from management -- a willingness to change course before a concern becomes a crisis. And it's another reason why Amazon remains a solid long-term investment in my view.
